German tops the ranking list of China’s ODI destinations: report

The report on country-risk rating of overseas investment from China 2019 is released by the Chinese Academy of Social Sciences (CASS) on Thursday in Beijing. Photo: Zhang Hongpei/GT

China's outbound direct investment (ODI) is forecast to grow slowly with minor fluctuations during the next couple of years, and it's crucial for domestic companies to protect their interests as developed nations screen incoming investment more closely, analysts told a report launch event on Thursday.

In terms of investment risk, Germany retained its AAA ranking, holding the top spot on the list. Iraq, Venezuela and Sudan were three B-ranked countries holding the highest level of risks for Chinese investment, according to a country-risk rating of overseas investment released by the Chinese Academy of Social Sciences (CASS) on Thursday.

Surveyed countries and regions along the routes of the Belt and Road initiative (BRI) pose higher-than-average investment risks mainly due to their economic fundamentals and political risks, but good relations with China will help reduce such risks, said the report.

The US was the only developed country whose ranking had a major change compared with last year, with its ranking falling from AA to A. It fell 10 spots to No.14 this year, mainly due to its low score for relations with China, which are being influenced by such factors as the China-US trade war and tightened US reviews of Chinese investment.

The policies of US President Donald Trump's administration have led to rising disputes within American society, which dragged down the country's performance in terms of social elasticity, the report said.

The report used five major indexes (economic fundamentals, ability to pay debt, social elasticity, political risks and relations with China) plus 41 sub-indexes.

It covered 57 countries and regions where China invested in 2017, which accounted for 86 percent of China's ODI. Samples were mainly chosen from among the G20 countries and those where China has made huge investments.

Figures for China's ODI in the US in 2018 have not been officially released, but analysts believe the value slumped.

Zhang Ming, director of the Department of International Investment with the CASS, told the Global Times on the sidelines of the launch event that the outlook isn't optimistic for China's ODI and acquisitions in the US this year. The bilateral trade dispute will not be resolved immediately and the US agency that reviews deals involving foreign companies - the Committee on Foreign Investment in the US (CFIUS) - has gained more power under US law.

"For the next few years, China's overall ODI growth will likely fluctuate in the single-digit range," Zhang noted.

The report said that many Chinese enterprises have huge assets overseas but little ability to protect their interests.

Zhang suggested the establishment of market-driven Chinese chambers representing businesses in investment destinations and the introduction of influential local partners or third-party agencies with good credit.

Pan Yuanyuan, a deputy research fellow at the Department of International Investment with the CASS, said at the report launch that tightening foreign investment screening in developed countries poses obstacles and risks for China's investment overseas, but this situation shouldn't deter China's efforts to go global, in particular in the areas of high-technology and energy.

"Some developed countries still hold a suspicious attitude toward investment from China, especially from State-owned enterprises," she noted.

Pan said that in the past 13 years, the annual growth rate of China's ODI in the US and EU was about 60 percent and 50 percent, respectively. The volumes themselves weren't striking, but the fast growth rates stoked rising attention and concern among developed economies.

"It is important to stop the possible trend that involves turning the CFIUS into an example to imitate," Pan said. Chinese enterprises should be more active in mitigating their counterparts' concerns especially in the area of core technology, where strict measures should be taken to prevent possible transfers.